Deal done – Felda Malays lose out to Chinese-Indonesians (Part 1)

Felda HAS quietly concluded purchase of a 37% stake in palm oil company PT Eagle High Plantations using borrowed money it can ill-forward to pay back. The Malaysian government has raised a sukuk for USD 252 million, guaranteeing it will be honored. But what honor is there in borrowing money you don’t have, buying things you don’t need, and worse of all – borrowing the future of your own people (the Felda Settlers) to pay for the huge past debts of an Indonesian tycoon.

Ingatlah!! This purchase follows FGV aborting a USD 680million deal late last year, which was due to very strong and truthful criticism from local and international investors who felt the deal was too expensive and very much favored Peter-Sondakh-owned EHP. British bank Standard Chartered was also pulled into controversy over the deal and became the target of a campaign asking it not to loan money to Felda.

The only common ground they both unfortunately have – Our Malaysian purchase of the Indonesian-chinese company would bring together two global underperformers in the palm oil industry when it comes to their lack of commitments towards sustainable palm oil.

More disturbingly, both have very bad track record on sustainability. Felda was accused of human rights violations on its plantations just recently by the Wall Street Journal, which reported claims that its contractors were subjecting workers to abusive conditions such as confiscating passports, withholding wages and denying them protective equipment on Felda’s plantations.

Independent auditors employed by the RSPO in October found examples of “other subtle forms of forced labour” on Felda plantations, such as withholding identity documents, accumulation of debt, unclear contractual arrangements, and minimum wage obligations not being met.

While Felda is a founding member of the Roundtable on Sustainable Palm Oil (RSPO), the certification standards body has been widely criticised by NGOs for weak standards on forest and peatland protection. For this reason, over the past couple of years many of Felda’s competitors, together with companies representing the vast majority of globally traded palm oil, have gone beyond RSPO standards to commit to policies of “no deforestation, no peat, and no exploitation”.

Malu – Felda has not made these commitments. Soalan seterusnya – why not?

Eagle High is part of the powerful Rajawali Group. It also lacks commitments to no deforestation, no peat, and no exploitation which many other Indonesian producers of comparable size have, including Astra Agro Lestari and First Resources.

In the Indonesian province of Papua, Eagle High’s subsidiary cleared 13,000 ha of rainforest between 2010 and 2014, according to sustainability risk analysis firm Chain Reaction Research. Last year, policy development institute Greenomics Indonesia published a report (pdf) claiming that an Eagle High subsidiary had started clearing high carbon stock forest in West Papua, where it has a forested 20,000 ha concession.

Now, the deal is done. The Felda Malays lose out to Chinese-Indonesians.